Fund managers Aberdeen Asset Management and Standard Life have agreed terms for an all-share merger.
The move will create one of the UK’s largest fund managers, overseeing assets worth £660bn. The two companies employ about 9,000 people.
The companies said the deal was subject to a number of conditions, including shareholder approval.
It says the combined group will be named to incorporate the names of both Standard Life and Aberdeen.
Following completion of the merger, Aberdeen shareholders will own about a third of the combined group, with Standard Life shareholders owning the remaining two thirds.
That reflects Aberdeen’s £3.8bn market capitalisation and Standard Life’s £7.5bn value.
Standard Life chairman Sir Gerry Grimstone will become chairman of the board, with Aberdeen chairman Simon Troughton becoming deputy chairman.
Standard Life and Aberdeen’s current chief executives, Keith Skeoch and Martin Gilbert, would become co-chief executives.
Lloyds Banking Group, which has a 10% stake in Aberdeen Asset Management, has backed the merger deal.
Pool of expertise
BBC Scotland business and economy editor Douglas Fraser said the logic of putting the firms together was to build investment clout, so they can compete with US-based giants such as Blackrock.
He said: “This puts them in a strong position as a global player in asset management of funds. It gives them scale, it gives them a deep pool of expertise with which to research the companies they invest in.
“Scale counts when you are talking information technology and computing, back-office, where there will be some duplication and they can cut costs there.
“What they are not spelling out so much is that they are under competitive pressure because they are in the business of active management of funds. Money is pouring into passive management without the expensive research teams.
“The new company in Scotland wants to make the case for competitively-priced active management as a means of getting ahead of the average market out-turn and, in particular, it is being driven by a relatively weak position for Aberdeen Asset Management.
“A lot of funds have been withdrawn in the past few years. Its portfolio of investment in emerging markets, where it’s had its real strength, has not performed that well because of the volatility in those markets. It did well while they were doing well but it is a volatile place to be.
“The company has been steered for 34 years by Martin Gilbert, much of that by acquiring other funds, and it does seem it has run out of other options to move on.
“The shareholders are not getting much of a premium on the value of their shares. A deal means a Standard Life share and that is worth about twice as much as an Aberdeen Asset Management share in the new arrangement.”
Analysts are predicting the merger could mean around 1,000 job losses – representing about one in 10 of the current employees.
Douglas Fraser added: “A lot of them would be in back-office, in IT and the sales team.
“The answer we are getting from the joint company this morning is that they want to stress that they want to grow.
“They don’t dispute that there are cost advantages and that jobs are likely to be shed, but they want to talk about the opportunities for growth such as Standard Life investments have seen in recent years.”